Hiring your first employee gives you more skills and support to grow your business—but there are a lot of guidelines to follow. If you’re a business owner in Pennsylvania, keep reading to see our complete guide to hiring in the Keystone State. In this post, we’ll guide you through six steps to hiring employees in Pennsylvania.
Step 1: Take care of logistics
Before you can start researching talented job candidates, you need to check a few items off your hiring to-do list:
Apply for an employer identification number (EIN) on the IRS website
If you’re registered as a partnership, multi-member limited liability company (LLC), C corporation, or S corporation, you likely already have an EIN, also known as your federal tax ID. However, if you run a sole proprietorship or single-member LLC and haven’t yet obtained an EIN, you need to get one before hiring employees.
You can apply for an EIN on the IRS website by completing an application.
Register with the Pennsylvania Department of Revenue
If you haven’t done it already, register your business entity with the Pennsylvania Department of Revenue using the Pennsylvania Online Business Tax Registration service. You can create an account here.
You also need to register to pay local Pennsylvania income withholding taxes. Fill out the Employer Registration Local Earned Income Tax Withholding form, then submit it to the appropriate local tax collector to register your business and get a business ID number.
Register for Pittsburgh and Philadelphia taxes
If you’re hiring employees in Pittsburgh or Philadelphia, you have to register for tax accounts with those individual cities as well as the state. Check out Pittsburgh’s new business registration instructions here, and register for a tax account with the city of Philadelphia here.
Register for Pennsylvania’s unemployment insurance program
To hire employees in Pennsylvania, you need to register with Pennsylvania’s Office of Unemployment Compensation (UC) and get unemployment insurance. The Pennsylvania Unemployment Compensation Law requires employers to make contributions to the UC Trust Fund on a quarterly basis and maintain employment records.
Get workers’ compensation insurance
Pennsylvania’s Department of Labor and Industry requires all employers with one or more part-time or full-time employees to obtain workers’ compensation insurance. Workers’ compensation coverage ensures that employees who get injured during the course of their job receive medical and wage-loss benefits—and also that the business has liability protection.
There are a few ways to get workers’ compensation insurance in Pennsylvania. You can apply for self-insurance, apply with the Pennsylvania State Workers’ Insurance Fund (SWIF), or search for a private insurance agent or broker using this comprehensive Pennsylvania list.
Step 2: Understand your hiring costs and tax liability
Hiring employees in Pennsylvania can be expensive, so it’s smart to review your finances and create a hiring budget. In addition to paying Medicare and Social Security taxes, you also have to pay a couple of state and local taxes, not to mention cover general hiring costs.
That includes recruiting expenses, like job site subscriptions and conference fees, as well as everything that goes into an employee compensation package. Think: employees’ salaries, health insurance, paid time off, and other benefits.
Here are the Pennsylvania hiring and tax costs to know about:
- Under the Federal Insurance Contributions Act (FICA), the Social Security tax rate is 6.2% for an employer and 6.2% for an employee. The rate for Medicare taxes is 1.45% for an employer and 1.45% for an employee.
- The annual state unemployment insurance (SUI) tax rate for new employers in Pennsylvania is 3.822% on a wage base of $10,000.
- The Federal Unemployment Tax Act (FUTA) works alongside state unemployment insurance programs. The FUTA tax rate is 6% on the first $7,000 of employee wages. However, if you pay SUI taxes on time and in full, you can get a credit on FUTA taxes of up to 5.4%, potentially dropping your FUTA tax liability to 0.6%.
- If you have a worksite (such as a factory, office, branch, or warehouse) located anywhere in the state of Pennsylvania, you have to withhold and remit the local earned income tax (EIT) and local services tax (LST) on behalf of employees working in the state. The rates vary depending on your business’s address; you can look up the rate for your business location here. For more information on local withholding taxes, read the Pennsylvania Department of Community and Economic Development’s FAQs.
- If you hire in the city of Pittsburgh, you’ll have to pay a handful of city taxes, including the payroll expense tax, EIT, and LST. You can see a full list of Pittsburgh employer taxes here, along with their tax rates and filing guidelines.
- If you hire in the city of Philadelphia, you’ll also have to pay certain city taxes, including the business income and receipts tax (BIRT), net profits tax, and wage tax. See the full list of Philadelphia employer taxes here, along with the tax rates and instructions on how and when to file your taxes.
Do you know how much it costs to hire an employee in Pennsylvania? Use this calculator to find out.
Step 3: Check Pennsylvania labor laws and employee classifications
It’s important to stay up to date on federal labor laws and state labor laws before hiring employees in Pennsylvania. That includes pay transparency and reporting laws, minimum wage requirements, overtime stipulations, and classification differences between employees and independent contractors.
Here are a handful of notable Pennsylvania labor laws:
- The minimum wage for employees in Pennsylvania is $7.25/hour. You can see a list of general Pennsylvania wage and hour laws here.
- Employees in Pennsylvania who work overtime (meaning more than 40 hours in a week) must be paid overtime pay, which is 1.5 times their regular rate of pay, unless they fall into the exempt category.
- Pennsylvania is an at-will state, meaning employers in Pennsylvania have the right to terminate employment without reason.
- The state of Pennsylvania doesn’t require employers to provide paid sick leave, vacation time, or severance—that’s up to the employer. However, both Pittsburgh and Philadelphia require employers residing or hiring within those cities to provide sick leave.
- Pennsylvania’s equal pay law makes it illegal to pay an employee less than the opposite sex for the same work.
Step 4: Fill out the Pennsylvania new hire reporting form and furnish forms to employee
When you hire an employee in Pennsylvania, you need to report information about that employee to the state within 20 days of their official hiring date. The hiring date is generally considered to be the first date an employee performs services you’ll pay them for, or the first day an employee on commission is eligible to earn commission.
You can visit PACareerLink to enter the Pennsylvania new hire reporting program and view the new hire reporting requirements. Depending on how many employees you’re hiring, you can either enter their information manually or use a template to upload information. You’ll provide the employee’s name, address, Social Security number, date of birth, and work start date.
Next, you need to complete a number of other important hiring documents, including:
- Employment contract: It’s a good idea to write an employment contract detailing the job responsibilities your employee will have, the wages you’ll pay, and your workplace policies.
- Form I-9: The US Citizenship and Immigration Services (USCIS) uses Form I-9, the Employment Eligibility Verification Form, to verify that employees are able to work in the US. As an employer, you have to complete Form I-9 for every employee you hire, and each employee must attest to their employment authorization. You don’t have to file Form I-9 with the USCIS or Immigration and Customs Enforcement (ICE). Instead, you hold onto the form as a record for at least three years from the date of hire or from one year after employment ends. Download Form I-9 and read the instructions here.
- Form W-4: Each new employee you hire needs to complete IRS Form W-4, The Employee’s Withholding Certificate, on or before the date of their employment. Form W-4 is used to determine how much federal income tax will be withheld from the employee’s paychecks. Download the form here.
- Residency certification form: You need to complete Pennsylvania’s Residency Certification Form for each employee you hire. You use this form to compare the “Total Resident EIT Rate” (for the municipality where your employee resides) to the “Work Location Non-Resident EIT Rate” (for the municipality where the employee works). As an employer, you’re required to withhold the higher of the two EIT Rates, as well as the LST. Check out the completion guidelines from the Pennsylvania Department of Community and Economic Development.
- Form REV-419: You also need to give employees Form REV-419, the Pennsylvania Employee’s Nonwithholding Application Certificate, to fill out.
Make sure you keep copies of all the above documents as part of your business’s records.
Step 5: Set up your payroll system
Hiring an employee for the first time is a good opportunity to set up or update your payroll system. Small business payroll software makes it easier to pay employees on time and maintain compliance. When you set up payroll, account for the following taxes:
- Federal income withholding taxes: You’ll use Form W-2 to file federal income tax withholding reports to the IRS. You’ll also file Form 941 on a quarterly basis and Form 940 annually.
- State income withholding taxes: Pennsylvania employers use Form REV-1667 to file their withholding tax returns. Check out Pennsylvania’s employer withholding FAQs here.
- Social Security and Medicare taxes
- Unemployment taxes
Step 6: Display labor law posters and required notices
Pennsylvania has a number of labor law signs and notices you’re required to post in your workplace, so your employees understand their rights and know which resources are available to them.
Check out the Pennsylvania Department of Labor and Industry’s posting requirements to find out which notices you’re obligated to post and how to download them. The city of Philadelphia also requires employers to post sick leave posters, which you can see here.
Here are all the required federal law labor posters as well.
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